-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PG0knNz4WIgskw3IfIuIJYj+3H+GsHz6EGZjgSPJf6RTzl0eBPB1WO0U5v/su7UJ ehtNVvnkizhjU0XApNkxNQ== /in/edgar/work/20001102/0000950149-00-002312/0000950149-00-002312.txt : 20001106 0000950149-00-002312.hdr.sgml : 20001106 ACCESSION NUMBER: 0000950149-00-002312 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REDDING BANCORP CENTRAL INDEX KEY: 0000702513 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 942823865 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25135 FILM NUMBER: 751400 BUSINESS ADDRESS: STREET 1: 1951 CHURN CREEK ROAD CITY: REDDING STATE: CA ZIP: 96002 BUSINESS PHONE: 5302243333 MAIL ADDRESS: STREET 1: 1951 CHURN CREEK ROAD CITY: REDDING STATE: CA ZIP: 96002 10-Q 1 f66679e10-q.txt REDDINGBANCORP FROM 10-Q DATED 9/30/00 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-25135 REDDING BANCORP (Exact name of Registrant as specified in its charter) CALIFORNIA 94-2823865 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 1951 CHURN CREEK ROAD REDDING, CALIFORNIA 96002 (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (530) 224-3333 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value per share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date. September 30, 2000: 2,614,851 2 REDDING BANCORP & SUBSIDIARIES INDEX TO FORM 10-Q - --------------------------------------------------------------------------------
PART I. Financial Information Page: Item 1. Financial Statements Consolidated Condensed Balance Sheets September 30, 2000 (Unaudited) and December 31, 1999 ...................3 Consolidated Condensed Statements of Income (Unaudited) Three and nine months ended September 30. 2000 and 1999.................4 Consolidated Condensed Statements of Cash Flows (Unaudited) Nine months ended September 30, 2000 and 1999...........................5 Notes to Consolidated Condensed Financial Statements.....................6 Item 2. Management's Discussion and Analysis Of Financial Condition and Results of Operations.............9 Item 3. Quantitative and Qualitative Disclosure about Market Risk........18 PART II. Other Information Item 1. Legal proceedings................................................20 Item 2. Changes in Securities and use of proceeds........................20 Item 3. Defaults Upon Senior Securities..................................20 Item 4. Submission of Matters to a Vote of Security Holders..............20 Item 5. Other Information................................................20 Item 6. Exhibits and Report on Form 8-K..................................20 SIGNATURES.......................................................................21
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS REDDING BANCORP & SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS)
September 30, 2000 December 31, 1999 ------------------ ----------------- (unaudited) Assets: Cash & Due From Banks $ 11,438 $ 11,605 Federal Funds Sold 23,180 7,560 --------- --------- Cash and cash equivalents 34,618 19,165 Investment Securities: Available for sale (amortized cost $19,865 in 2000 and $25,767 in 1999) 19,676 25,375 Held to maturity (market value of $5,513 in 2000 and $6,722 in 1999) 5,613 6,769 --------- --------- 25,289 32,144 Loans: Real Estate - Construction 34,492 37,859 Real Estate - Commercial 88,124 78,842 Commercial & Financial 61,347 53,383 Installment Loans 430 294 Other Loans 2,973 2,812 --------- --------- Total Loans 187,366 173,190 Deferred loan fees (240) (372) Less allowance for loan losses (3,083) (2,972) --------- ---------- Net Loans 184,043 169,846 Premise & Equipment 5,346 5,474 Other Assets 6,974 5,890 --------- --------- Total Assets $ 256,270 $ 232,519 ========= ========= Liabilities: Demand Accounts $ 39,860 $ 40,381 NOW & Money Market 46,670 43,176 Savings Accounts 14,238 11,577 Time Accounts 118,853 103,189 --------- --------- Total Deposits 219,621 198,323 Borrowed Funds 4,189 4,800 Other Liabilities 3,492 3,337 --------- --------- Total Liabilities 227,302 206,460 Stockholders' Equity: Common Stock 5,169 4,809 Retained Earnings 23,919 21,491 Accumulated other comprehensive income (120) (241) --------- --------- 28,968 26,059 --------- --------- Total Liabilities & Stockholders' Equity $ 256,270 $ 232,519 ========= =========
See notes to unaudited consolidated condensed financial statements. 3 4 REDDING BANCORP & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Three months ended Nine months ended September 30, September 30, September 30, September 30, ------------- ------------- ------------- ------------- 2000 1999 2000 1999 -------- -------- -------- -------- Interest Income: Interest & Fees on Loans $ 4,483 $ 3,734 $ 13,023 $ 10,641 Interest on Investments 346 551 1,129 1,588 Interest on Federal Funds Sold 324 117 690 428 -------- -------- -------- -------- Total Interest income 5,153 4,402 14,842 12,657 -------- -------- -------- -------- Interest Expense: Interest on Checking 319 180 763 525 Interest on Savings 111 82 320 263 Interest on Time Deposits 1,813 1,391 4,993 3,810 Interest on Borrowed Funds 81 47 240 47 -------- -------- -------- -------- Total Interest Expense 2,324 1,700 6,316 4,645 -------- -------- -------- -------- Net Interest Income 2,829 2,702 8,526 8,012 Provision for Loan Losses 0 10 56 50 -------- -------- -------- -------- Net Interest Income After Provision for loan losses 2,829 2,692 8,470 7,962 -------- -------- -------- -------- Non-Interest Income: Service Charges 56 55 166 200 Credit Card Income, net 482 510 1,406 1,396 Other Income 171 132 535 473 Gain (Loss) sale of Loans 21 0 73 77 Gain (Loss) on sale of Investment securities available for sale 0 0 (59) 0 -------- -------- -------- -------- Total Other Income: 730 697 2,121 2,146 -------- -------- -------- -------- Non-Interest Expense: Salaries & Benefits 972 1,030 2,794 2,885 Occupancy & Equipment 246 238 735 686 Data Processing & Other Professional 126 127 394 426 Other Expense 295 99 908 923 -------- -------- -------- -------- Total Other Expense 1,639 1,494 4,831 4,920 -------- -------- -------- -------- Income before Income Taxes 1,920 1,895 5,760 5,188 Provision for Income Tax 695 738 2,130 1,998 -------- -------- -------- -------- Net Income $ 1,225 $ 1,157 $ 3,630 $ 3,190 ======== ======== ======== ======== Net income per Share- Basic* $ 0.43 $ 0.40 $ 1.26 $ 1.09 Weighted Average Shares 2,877 2,911 2,883 2,933 Net income per Share- Diluted* $ 0.41 $ 0.37 $ 1.19 $ 1.01 Weighted Average Shares 3,005 3,148 3,038 3,152
* All share and per share amounts are restated to vie retroactive effect to the 10% stock dividend. (See Note 1) See notes to unaudited consolidated condensed financial statements. 4 5 REDDING BANCORP & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Nine Months Ended September 30, September 30, 2000 1999 ------------- ------------- Cash flows from operating activities: Net Income $ 3,630 $ 3,190 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 56 50 Provision for depreciation 383 347 Compensation associated with stock options 50 50 Amortization of investment premiums and accretion of discounts, net 175 (30) Loss on sale of available for sale investment securities 59 0 (Gain) loss on sale of loans (111) (120) Proceeds from sales of loans 4,745 4,017 Loans originated for sale (4,856) (4,137) (Increase) Decrease in other assets (1,084) 714 (Decrease) Increase in deferred loan fees (132) (69) Increase (Decrease) in other liabilities 156 353 -------- -------- Net cash provided by operating activities 3,071 4,365 -------- -------- Cash flows from investing activities: Proceeds from maturities of available for sale investment securities 4,273 18,623 Proceeds from sale of available for sale investment securities 4,420 4,516 Purchases of available for sale investment securities (1,952) (33,046) Loan origination's, net of principal repayments (13,898) (19,784) Purchases of premises and equipment (267) (287) Proceeds from sales of equipment 12 16 -------- -------- Net cash provided (used) by investing activities (7,412) (29,962) -------- -------- Cash flows from financing activities: Net change in deposits and borrowings 20,687 21,517 Cash dividends Common stock repurchase transactions (1,202) (1,081) Common stock options exercised 309 3 -------- -------- Net cash provided by financing activities 19,794 20,439 -------- -------- Net increase (decrease) in cash and cash equivalents 15,453 (5,158) Cash and cash equivalents at beginning of year 19,165 26,800 -------- -------- Cash and cash equivalents at end of period $ 34,618 $ 21,642 ======== ======== Supplemental disclosures: Cash paid during the period for Income taxes 2,124 2,498 Interest 6,242 4,551 Non-cash Financing Activities Dividends declared not paid 1,700 1,593
See notes to unaudited consolidated condensed financial statements. 5 6 REDDING BANCORP & SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and related notes contained in Redding Bancorp's 1999 Annual Report to Shareholders. The statements include the accounts of Redding Bancorp ("the Company"), and its wholly owned subsidiaries, Redding Bank of Commerce ("the Bank") and Redding Service Corporation. All significant inter-company balances and transactions have been eliminated. The financial information contained in this report reflects all adjustments that in the opinion of management are necessary for a fair presentation of the results of the interim periods. All such adjustments are of a normal recurring nature. The results of operations and cash flows for the three and nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and repurchase agreements. Federal funds sold and repurchase agreements are generally for one day periods. On September 19, 2000, the Board of Directors declared a cash divided of .65 cents per share and a 10% stock dividend on the Company's Common Stock. Both the cash and stock dividend will be paid on October 23, 2000 to shareholders of record as of October 1, 2000. All share and per share amounts have been restated to give retroactive effect to the 10% stock dividend. 2. NET INCOME PER SHARE Basic net income per share excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The following table displays the computation of net income per share for the three and nine months ended September 30, 2000 and 1999. All share and per share amounts have been restated to give retroactive effect to the 10% stock dividend.
(Dollars in thousands, except per share data) Three Months Ended Nine Months Ended - ---------------------------------------------------------------------------------------------------- Basic EPS Calculation: Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999 - ---------------------------------------------------------------------------------------------------- Numerator (net income) $1,225 $1,157 $ 3,630 $ 3,190 Denominator (average common shares outstanding) 2,877 2,911 2,883 2,933 Basic net income per Share $ 0.43 $ 0.40 $1.26 $1.09 Diluted EPS Calculation: Numerator (net income) $1,225 $ 1,157 $ 3,630 $3,190 Denominator: Average common shares outstanding 2,877 2,911 2,883 2,933 Options 128 237 155 219 ------- ------ ------- ------ 3,005 3,148 3,038 3,152 Diluted net income per Share $ 0.41 $ 0.37 $1.19 $ 1.01
6 7 3. COMPREHENSIVE INCOME The Company's total comprehensive income was as follows:
Three Months Ended Nine Months Ended - ------------------------------------------------------------------------------------------------------- Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999 - ------------------------------------------------------------------------------------------------------- Net Income as reported $ 1,225 $ 1,157 $3,630 $ 3,190 Other comprehensive income (net of tax): Change in unrealized holding Gain (loss) on available for sale securities 82 (118) 84 (419) Reclassification adjustment 0 0 37 0 ------- ------- ------ ------- Total comprehensive income $ 1,307 $ 1,039 $3,509 $ 2,771
4. SEGMENT REPORTING The Company has two reportable segments: commercial banking and credit card services. The Company conducts a general commercial banking business in the counties of El Dorado, Placer, Shasta, and Sacramento, California. The principal commercial banking activities include a full-array of deposit accounts and related services and commercial lending for businesses and their interests. Credit card services are limited to those revenues and data processing costs associated with its agreement with an Independent Sales Organization (ISO), pursuant to which the Bank provides credit and debit card processing services for merchants solicited by the ISO or the Bank who accept credit and debit cards as payments for goods and services. The following table presents financial information about the Company's reportable segments:
Three Months Ended Nine Months Ended - ------------------------------------------------------------------------------------------------------- Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999 - ------------------------------------------------------------------------------------------------------- Commercial Banking $ 1,438 $1,385 $ 4,354 $ 3,792 Credit card services 482 510 1,406 1,396 ------- ------- ------- ------- $ 1,920 $ 1,895 $5,760 $ 5,188
In April 1993, the Bank entered into an agreement (the "Merchant Services Agreement") with Cardservice International, Inc. ("CSI"), an independent sales organization ("ISO") and nonbank merchant credit card processor, pursuant to which the Bank has agreed to provide credit and debit card processing services for merchants solicited by CSI who accept credit and debit cards as payment for goods and services. Pursuant to the Merchant Services Agreement, the Bank acts as a clearing bank for CSI and processes credit or debit card transactions into the Visa(R) or MasterCard(R) system for presentment to the card issuer. As a result of the Merchant Services Agreement, the Bank has acquired electronic credit and debit card processing relationships with merchants in various industries on a nationwide basis. The Merchant Services Agreement with CSI was renewed in 1997 for a period of four years, which expires on April 1, 2001. During the course of negotiations the Company has determined that the continuation of the contract will be at substantially reduced revenues. CSI and the Company have come to an agreement on renewal terms of the contract. The pricing of the contract renewal is 2 basis points of transaction processing and one-half of the earnings on the deposit relationship. The contract renewal represents a significant decline in revenues from merchant credit card processing . Refer to management's discussion and analysis of financial condition and results of operations. 7 8 6. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and hedging activities. The statement establishes accounting and reporting standards for derivative instruments and hedging activities. The effective date for the statement has been postponed until the year 2001. The Company is in the process of determining the impact of SFAS No. 133 on the Company's financial statements. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT. This quarterly report on Form 10-Q includes forward-looking information, which is subject to the "safe harbor" created by the Securities Act of 1933, and Securities Act of 1934. These forward-looking statements (which involve the Company's plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: o Competitive pressure in the banking industry and changes in the regulatory environment. o Changes in the interest rate environment and volatility of rate sensitive deposits. o The health of the economy declines nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of the Company's loans. o Credit quality deteriorates which could cause an increase in the provision for loan losses. o Losses in the Company's merchant credit card processing business. ~ Loss of the merchant credit card processing business. o Asset/Liability matching risks and liquidity risks. o Changes in the securities markets. For additional information concerning risks and uncertainties related to the Company and its operations please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 under the heading "Risk factors that may affect results". Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The following sections discuss significant changes and trends in financial condition, capital resources and liquidity of the Company from December 31, 1999 to September 30, 2000. Also discussed are significant trends and changes in the Company's results of operations for the three and nine months ended September 30, 2000, compared to the same period in 1999. The consolidated financial statements and related notes appearing elsewhere in this report are condensed and unaudited. GENERAL Redding Bancorp ("The Company") is a financial services holding company ("FHC") with its principal offices in Redding, California. A financial services holding company may engage in a commercial banking, insurance, securities business and offer other financial products to consumers. The Company received notification from the Federal Reserve Board approving the election to change to a financial holding company on April 22, 2000. The election to change to a financial holding company has had no impact to date on the operations of the Company. The Company engages in a general commercial banking business in Redding and the counties of El Dorado, Placer, Shasta, and Sacramento, California. The Company considers Northern California to be the Company's major market area. The Company conducts its business through the Redding Bank of Commerce ("The Bank"), its principal subsidiary. The services offered by the Company include those traditionally offered by commercial banks of similar size and character in California, such as checking, interest-bearing checking ("NOW") and savings accounts, money market deposit accounts, commercial, construction, real estate, personal, home improvement, automobile and other installment and term loans, travelers checks, safe deposit boxes, collection services, telephone and internet banking. 9 10 The primary focus of the Company is to provide financial services to the business and professional community of its major market area including Small Business Administration ("SBA") loans, commercial building financing, payroll and benefit accounting packages and merchant credit card acquisition. The Company does not offer trust services or international banking services and does not plan to do so in the near future. On November 12, 1999 President Clinton signed into law the Gramm-Leach-Bliley Act, or the Financial Services Act of 1999 (the "FSA") which became effective on March 11, 2000. The FSA repeals provisions of the Glass-Steagall Act, which had prohibited commercial banks and securities firms from affiliating with each other and engaging in each other's businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been eliminated. The BHCA is also amended by the FSA, to allow new "financial holding companies" ("FHC") to offer banking, insurance, securities and other financial products to consumers. Specifically, the FSA amends section 4 of the BHCA in order to provide for a framework for the engagement in new financial activities. Bank holding companies ("BHC") may elect to become a financial holding company if all its subsidiary depository institutions are well-capitalized and well-managed. If these requirements are met, a BHC may file a certification to that effect with the Federal Reserve Bank and declare that it chooses to become a FHC. After the certification and declaration is filed, the FHC may engage either de novo or though an acquisition in any activity that has been determined by the FRB to be financial in nature or incidental to such financial activity. The Company derives its income from two principal sources: (i) net interest income, which is the difference between the interest income it receives on interest-earning assets and the interest expense it pays on interest-bearing liabilities, and (ii) fee income, which includes fees earned on deposit services, income from SBA lending, electronic-based cash management services and merchant credit card processing services. Management considers the business of the Company to be divided into two segments: (i) commercial banking and (ii) credit card services. Credit card services are limited to those revenues, net of related data processing costs, associated with the Merchant Services Agreement and the Bank's agreement to provide credit and debit card processing services for merchants solicited by the Bank who accept credit and debit cards as payments for goods and services. In April 1993, the Bank entered into an agreement (the "Merchant Services Agreement") with Cardservice International, Inc. ("CSI"), an independent sales organization ("ISO") and nonbank merchant credit card processor, pursuant to which the Bank has agreed to provide credit and debit card processing services for merchants solicited by CSI who accept credit and debit cards as payment for goods and services. Pursuant to the Merchant Services Agreement, the Bank acts as a clearing bank for CSI and processes credit or debit card transactions into the Visa(R) or MasterCard(R) system for presentment to the card issuer. As a result of the Merchant Services Agreement, the Bank has acquired electronic credit and debit card processing relationships with merchants in various industries on a nationwide basis. The Merchant Services Agreement with CSI was renewed in 1997 for a period of four years, which expires on April 1, 2001. CSI and the Company have recently reached an agreement on the renewal of the contract. Effective April 1, 2001, pricing of the contract renewal is 2 basis points of transaction processing and one-half of the earnings on the deposit relationship. The current pricing of the contract in effect is 135 basis points of transaction processing and the full earnings on the deposit relationship. The contract renewal represents a significant decline in revenues from merchant credit card processing. If the new pricing had been in effect for the nine months ended September 30, 2000, revenue would have been $960,000 less than the actual amount recorded of $1,247,000. The Company is pursuing various strategies to offset the decline in revenues, including expansion of the Roseville Banking Center, enhancing the merchant credit card sales team in the Roseville and Redding markets, and projecting aggressive growth in the loan markets. Merchant bankcard processing services are highly regulated by credit card associations such as Visa. In order to participate in the credit card program, Redding Bank of Commerce must comply with the credit card association's rules and regulations that may change from time to time. During November 1999, Visa adopted several rule changes to reduce the risk profile in high-risk acquiring programs and these rule changes affect the Bank's Merchant Services business segment. These changes include a requirement that an acquiring processor's reported fraud ratios be no greater than three times the national average. 10 11 Redding Bank of Commerce's overall fraud ratio was below the Visa requirement. Other Visa changes announced included the requirement that total processing volume in certain high-risk categories (as defined by Visa) be less than 20% of total processing volume. At September 30, 2000 the Bank's total Visa transactions within these certain high-risk categories were 18% of Visa total processing volume. Although these merchants are categorized as high-risk, precautions have been taken such as requiring higher deposit reserves, daily monitoring and aggressive fraud control, and to date has not seen extraordinary losses in these categories. Additionally Visa announced a requirement that weekly average Visa volumes be less than 60% of an institutions tangible equity capital, and a requirement that the aggregate charge-backs for the previous six months be less than 5% of the institutions tangible equity capital. Previous guidelines allowed the weekly average Visa volumes to be four times equity capital. At September 30, 2000 the Bank's average weekly Visa volume was 85% of tangible equity capital, slightly above the prior guidelines, and aggregate charge-backs for the previous six months were 11% of tangible equity capital. A written plan has been submitted and approved by Visa to allow for attrition to bring the processing volumes into line with the new guidelines. Participants in the merchant bankcard acquiring program, such as the Bank, must comply with these new Visa rules by filing a compliance plan with Visa by February 12, 2000. The Bank met the deadline of February 12, 2000, and Visa has accepted the plan to gradually reduce the concentration of high-risk merchant processing. CHANGES IN FINANCIAL CONDITION Assets at the nine months ended September 30, 2000 totaled $256 million, a $24 million or 10.2% increase over total assets at December 31, 1999. The growth is centered in the loan portfolio, totaling $187 million at September 30, 2000 compared to $173 million at December 31, 1999, an 8.2% increase. The growth has been funded in part by an increase in time deposits of 15.2% over December 31, 1999, and maturities of investment securities. During the nine-month period ended September 30, 2000, deposits increased $21 million or 10.1% to $219 million compared with $198 million at December 31, 1999. The increase in deposits is a result of increases in time deposits, savings deposits and money market accounts partially offset by a decrease in demand deposits. The increase in deposits is attributable to the full service conversion of the Roseville Banking Center, and internal growth in the Redding market. During the same period, total loans increased $14 million or 8.2% compared with $173 million at December 31, 1999. The increase in loans is primarily the result of increases in the commercial real estate portfolio, and to a lesser degree in the commercial portfolio. The increases were partially offset by decreases in the construction real estate portfolio. Total Investment securities decreased $7 million or 21.3% to $25 million at September 30, 2000 compared with $32 million at December 31, 1999, and federal funds sold increased $16 million or 207% to $23 million at September 30, 2000 compared with $7 million at December 31, 1999. The decrease in investment securities was the result of increased loan demand. The increase in federal funds sold was the result of a planned build-up of federal funds for liquidity purposes to assist in the growth of the Roseville Banking Center. EARNINGS RESULTS The Company reported earnings of $1,225,000 for the three months ended September 30, 2000 ($0.41 per share diluted) compared to $1,157,000 ($0.37 per share diluted) for the same period in 1999, representing an increase of 5.9%. Earnings for the nine months ended September 30, 2000, was $3,630,000 ($1.19 per share, diluted), compared to $3,190,000 ($1.01 per share, diluted) for the nine months ended September 30, 1999. Factors contributing to the increase in operating results include an increase in the volume of earning assets, coupled with a decrease in other non-interest expense, and partially offset by an increase in the cost of funding. 11 12 NET INTEREST INCOME Net interest income is the primary source of income for the Bank. Net interest income represents the excess of interest and fees earned on interest-earning assets (loans, investments and Federal Funds sold) over the interest paid on deposits and borrowed funds. Net interest margin is net interest income expressed as a percentage of average earning assets. For the three months ended September 30, 2000, interest income increased $751,000 (17.1%) over the same period in 1999. Interest expense on deposit accounts and borrowings increased $624,000 (36.7%) over the same three-month period in 1999. For the nine months ended September 30, 2000, interest income increased $2,185,000 or 17.3% over the same nine-month period in 1999. For the nine months ended September 30, 2000, interest expense on deposit accounts and borrowings increased $1,671,000 or 36% over the same period in 1999. The combined effect of the increase in volume of earning assets and increase in yield on earning assets, coupled with increases in cost of funding sources resulted in an increase of $514,000 (6.4%) in net interest income for the nine month period ended September 30, 2000 over the same period in 1999. Net interest margin decreased 03 basis points to 5.11% from 5.14% for the same period a year ago. The net interest margin decrease is attributed to an increased cost of funding where the average cost of funding has increased to 4.79% from 4.01% a year ago. The higher costs are primarily related to the growth in higher yielding time certificates of deposit. The following table sets forth the Company's daily average balance sheet, related interest income or expense and yield or rate paid for the periods indicated. Tax-exempt investment yields have not been adjusted to a tax-equivalent yield basis. AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES PAID (UNAUDITED, DOLLARS IN THOUSANDS)
Nine Months Ended Sept 30, 2000 Sept 30, 1999 -------------------------- ------------------------ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ------- -------- ------ ------- -------- ------ Earning Assets Portfolio Loans $180,256 $ 13,023 9.63% $156,332 $10,641 9.08% Tax Exempt Securities 3,271 108 4.40% 5,704 184 4.30% US Government 23,154 978 5.63% 30,942 1,309 5.64% Federal Funds Sold 15,096 690 6.09% 12,553 428 4.55% Other Securities 540 43 10.62% 2,308 95 5.49% -------- -------- ----- -------- -------- ---- Average Earning Assets $222,317 $ 14,842 8.90% $ 207,839 $ 12,657 8.12% ======== ======== Cash & Due From Banks $ 10,539 $ 10,249 Bank Premises 5,625 5,427 Allowance for Loan Losses (3,007) (3,248) Other Assets 4,967 4,864 -------- -------- Average Total Assets $240,243 $225,329 ======== ========
12 13 AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES PAID (UNAUDITED, DOLLARS IN THOUSANDS)
Nine Months Ended Nine Months Ended Sept 30, 2000 Sept 30, 1999 ------------- ------------- Interest Bearing Liabilities Demand Interest Bearing $ 40,764 $ 763 2.50% $ 40,830 $ 525 1.71% Savings Deposits 13,654 320 3.12% 12,919 263 2.71% Certificates of Deposit 116,649 4,993 5.71% 99,567 3,810 5.10% Borrowings 4,755 240 6.73% 1,318 47 4.75% -------- ------- ---- -------- ------- ---- 175,822 $ 6,316 4.79% 154,634 4,645 4.01% ------- ------- Non interest Demand 36,314 43,540 Other Liabilities 1,164 2,188 Shareholder Equity 26,943 24,967 -------- -------- Average Liabilities and Shareholders Equity $240,243 $225,329 ======== ======== Net Income and Net Interest Margin $ 8,526 5.11% $ 8,012 5.14% ======= =======
The following tables set forth changes in interest income and expense for each major category of earning assets and interest-bearing liabilities, and the amount of change attributable to volume and rate changes for the periods indicated. Changes attributable to rate/volume have been allocated to volume changes. ANALYSIS OF CHANGES IN NET INTEREST INCOME
Nine months ended Nine months ended Sept 30, 2000 over Sept 30, 1999 Volume Rate Total -------- ------ ------- Increase(Decrease) In Interest Income Portfolio loans $ 1,728 $ 654 $ 2,382 Tax exempt securities (80) 4 (76) US Government securities (329) (2) (331) Federal Funds Sold 116 146 262 Other Securities (141) 89 (52) ------- ------ ------- Total Increase $ 1,294 $ 891 $ 2,185 ======= ====== ======= Increase (Decrease) In Interest Expense Interest Bearing Demand $ (1) $ 239 $ 238 Savings Deposits 17 40 57 Certificates of Deposit 731 452 1,183 Borrowings 173 20 193 ------- ------ ------- Total Increase $ 920 $ 751 $ 1,671 ======= ====== ======= Net Increase $ 374 $ 140 $ 514 ======= ====== =======
13 14 NON-INTEREST INCOME The Company's noninterest income consists of processing fees for merchants who accept credit card payments for goods and services, service charges on deposit accounts, and other service fees. For the three months ended September 30, 2000, noninterest income increased $33,000 over the same period in 1999. Credit card processing income decreased $28,000 (5.5%) while other income increased $60,000 (45%) over the same period in 1999. For the nine months ended September 30, 2000, noninterest income decreased $25,000 (1.2%) over the same period in 1999. Service charges decreased $34,000 (17%) over the same period in 1999, partially offset by increases in credit card income of $10,000 (.7%) and other income of $58,000 (10.6%). Contributing to the decrease in noninterest income are reductions in the volume of overdraft processing resulting in a reduction of fee income collected and losses on sales of investment securities. Contributing to the increase in other income are increases in ATM fees collected of $36,000 or (30%) and non-deposit investment fees of $20,828 (100%) over the same period in 1999. Refer to footnote five, Segment reporting, and Management's discussion and analysis for further information on credit card processing. The following table sets forth a summary of noninterest income for the periods indicated.
(Dollars in Thousands) Three Months Ended Nine Months Ended - -------------------------------------------------------------------------------------------------- Noninterest Income Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999 - -------------------------------------------------------------------------------------------------- Service Charges $56 $55 $166 $200 Credit Card Income, net 482 510 1,406 1,396 Other Income 171 132 535 473 Gain(loss) sale of loans 21 0 73 77 -- Gain(loss) sale of investment securities 0 0 (59) 0 Total noninterest income $ 730 $ 697 $ 2,121 $ 2,146
NON-INTEREST EXPENSE Noninterest expenses consist of salaries and related employee benefits, occupancy and equipment expenses, data processing fees, professional fees, directors' fees and other operating expenses. For the three months ended September 30, 2000, noninterest expense increased $145,000 (9.7%) over the same period in 1999. Recoveries of legal expense during 1999 reduced expenses to $99,000 for the third quarter 1999. For the nine months ended September 30, 2000, noninterest expense decreased $89,000 (1.8%) over the same nine months ended 1999. Salary and benefit expenses have decreased $91,000 (3.2%) over the prior year and are attributable to increased collection of loan costs offsetting salary expenses. Data processing and professional fees have decreased $32,000 (8.1%), and insurance coverage costs decreased $25,000 (42%) over the prior year. The following table sets forth a summary of noninterest expense for the periods indicated.
(Dollars in Thousands) Three Months Ended Nine Months Ended - ------------------------------------------------------------------------------------------------- Noninterest Expense Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999 - ------------------------------------------------------------------------------------------------- Salaries and Benefits $ 972 $1,030 $2,794 $2,885 Occupancy & Equipment 246 238 735 686 Data Processing & Other professional 126 127 394 426 Other Expenses 295 99 908 923 ------ ------- ------ ------- Total Noninterest expense $1,639 $ 1,494 $4,831 $ 4,920
14 15 INCOME TAXES The Company's provision for income taxes includes both federal and state income taxes and reflects the application of federal and state statutory rates to the Company's net income before taxes. The principal difference between statutory tax rates and the Company's effective tax rate is the benefit derived from investing in tax-exempt securities. Increases and decreases in the provision for taxes reflect changes in the Company's net income before tax. The following table reflects the Company's tax provision and the related effective tax rate for the periods indicated.
(Dollars in thousands) Three Months Ended Nine Months Ended Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999 - -------------------------------------------------------------------------------------------- Tax provision $ 695 $ 738 $2,130 $ 1,998 Effective tax rate 36.2% 38.9% 37.0% 38.5% - --------------------------------------------------------------------------------------------
The Company's effective tax rate varies with changes in the relative amounts of its non-taxable income and non-deductible expenses. The increase in the Company's tax provision is attributable to increases in the Company's pre-tax income. ASSET QUALITY The Company concentrates its lending activities primarily within Shasta, El Dorado, Placer and Sacramento Counties, California, and the location of the Bank's three full service branches. The Company manages its credit risk through diversification of its loan portfolio and the application of underwriting policies and procedures and credit monitoring practices. Although the Company has a diversified loan portfolio, a significant portion of its borrowers' ability to repay the loans is dependent upon the professional services and residential real estate development industry sectors. Generally, the loans are secured by real estate or other assets and are expected to be repaid from the cash flows of the borrower or proceeds from the sale of collateral. The following table sets forth the amounts of loans outstanding by category as of the dates indicated:
(Dollars in thousands) September 30, 2000 December 31, 1999 - --------------------------------------------------------------------------------------------- Loans - --------------------------------------------------------------------------------------------- Real Estate-Construction $ 34,492 $ 37,859 Real Estate-Commercial 88,124 78,842 Commercial & Financial 61,347 53,383 Installment 430 294 Other Loans 2,973 2,812 Less: Deferred Loan Fees and Costs (240) (372) Allowance for Loan Losses (3,083) (2,972) - --------------------------------------------------------------------------------------------- Total Net Loans $184,043 $169,846 - ---------------------------------------------------------------------------------------------
The Company's practice is to place an asset on nonaccrual status when one of the following events occurs: (i) any installment of principal or interest is 90 days or more past due (unless in management's opinion the loan is well secured and in the process of collection). (ii) Management determines the ultimate collection of principal or interest to be unlikely or (iii) the terms of the loan have been renegotiated due to a serious weakening of the borrower's financial condition. Nonperforming loans are loans that are on nonaccrual, are 90 days past due and still accruing or have been restructured. Net portfolio loans increased $14 million or 8.4% at September 30, 2000 over $169.8 million at December 31, 1999. The portfolio mix remains stable with the mix at December 31, 1999, with commercial and financial loans of approximately 33%, real estate construction of 19% and commercial real estate at 48%. 15 16 Impaired loans are loans for which it is probable that the Bank will not be able to collect all amounts due under the original terms of the contract. The Bank had outstanding balances of $1,224,000 and $394,000 in impaired loans that had impairment allowances of $456,547 and $315,000 as of September 30, 2000 and December 31, 1999, respectively. The Bank had average balances of $693,685 and $612,411 in impaired loans for the nine months ended as of September 30, 2000 and for the year ended December 31, 1999. The following table sets forth a summary of the Company's nonperforming assets as of the dates indicated:
(Dollars in thousands) September 30, 2000 December 31, 1999 - --------------------------------------------------------------------------------------------- Non performing assets - --------------------------------------------------------------------------------------------- Nonaccrual loans $1,224 $394 Other Real Estate Owned 0 40 - ---------------------------------------------------------------------------------------------
The Company's nonaccrual loans increased from $394,000 to $1,224,000 in the first nine months of 2000. The increase is attributed to one credit placed in nonaccrual status. OREO properties were sold during the second quarter 2000. ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL) The Company makes provisions to the ALLL on a regular basis through charges to operations that are reflected in the Company's statements of income as a provision for loan losses. When a loan is deemed uncollectible, it is charged against the allowance. Any recoveries of previously charged-off loans are credited back to the allowance. There is no precise method of predicting specific losses or amounts that ultimately may be charged-off on particular categories of the loan portfolio. Similarly, the adequacy of the ALLL and the level of the related provision for possible loan losses is determined on a judgment basis by management based on consideration of (i) economic conditions, (ii) borrowers' financial condition, (iii) loan impairment, (iv) evaluation of industry trends, (v) industry and other concentrations, (vi) loans which are contractually current as to payment terms but demonstrate a higher degree of risk as identified by management, (vii) continuing evaluation of the performing loan portfolio, (viii) monthly review and evaluation of problem loans identified as having loss potential, (ix) quarterly review by the Board of Directors, (x) off balance sheet risks and (xi) assessments by regulators and other third parties. Management and the Board of Directors evaluate the allowance and determine its desired level considering objective and subjective measures, such as knowledge of the borrowers' business, valuation of collateral, the determination of impaired loans and exposure to potential losses. The ALLL is a general reserve available against the total loan portfolio and off balance sheet credit exposure. It is maintained without any interallocation to the categories of the loan portfolio, and the entire allowance is available to cover any loan losses. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's ALLL. Such agencies may require the Bank to provide additions to the allowance based on their judgment of information available to them at the time of their examination. There is uncertainty concerning future economic trends. Accordingly, it is not possible to predict the effect future economic trends may have on the level of the provision for possible loan losses in future periods. The ALLL should not be interpreted as an indication that charge-offs in future periods will occur in the stated amounts or proportions. The adequacy of the ALLL is calculated upon three components. First is the dollar weighted risk rating of the loan portfolio, including all outstanding loans and leases, off balance sheet items, and commitments to lend. Every extension of credit is assigned a risk rating based upon a comprehensive definition intended to measure the inherent risk of lending money. Each rating has an assigned a risk factor expressed as a reserve percentage. 16 17 Central to this assigned risk (reserve) factor is the five-year historical loss record of the bank. Secondly, established specific reserves are available for individual loans currently on management watch and high-grade loan lists. These are the estimated potential losses associated with specific borrowers based upon the collateral and event(s) causing the risk rating. The third component is unallocated. This reserve is for qualitative factors that may effect the portfolio as a whole, such as those factors described above. Management believes the assigned risk grades and our methods for managing changes are satisfactory. Management believes the loan portfolio performance has improved as reflected by the stable and low delinquency ratio. Watch list and high-grade loans have increased somewhat over the past year, primarily due to management's plan to move more susceptible although performing accounts to attention. The following table summarizes the activity in the ALLL reserves for the periods indicated.
(Dollars in thousands) Three Months Ended Nine Months Ended - ------------------------------------------------------------------------------------------------- Allowance for Loan & Lease Losses Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999 - ------------------------------------------------------------------------------------------------- Beginning balance for Loan Losses $ 3,034 $ 3,276 $2,972 $ 3,235 Provision for Loan Losses 0 10 56 50 Charge offs: Commercial (0) (0) (0) (0) Real Estate (0) (50) (0) (83) Other (0) (1) (0) (23) ------- ------- ------ ------ Total Charge offs (0) (51) (0) (106) Recoveries: Commercial 47 7 53 12 Real Estate 2 0 2 40 Other 0 11 0 22 ------- ------- ------ ------ Total Recoveries 49 18 55 74 Ending Balance $ 3,083 $ 3,253 $3,083 $ 3,253 ALLL to total loans 1.65% 1.97% 1.65% 1.97% - -------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO Total investment securities decreased $7 million in the first nine months of 2000 or 21.3%. The decrease represents maturities of $4.3 million, purchases of $2.0 million and sales of $4.4 million. The Company recorded gross losses of $59,000 in the nine months ended September 30, 2000 from sales of investment securities. Proceeds from the sales of investment securities were used to fund loan commitments. LIQUIDITY With respect to assets, liquidity is provided by cash and money market investments such as interest-bearing time deposits, federal-funds sold, investment securities available-for-sale and principal and interest payments on loans. With respect to liabilities, the Company's core deposits, shareholders' equity and the ability of the Bank to borrow funds and to generate deposits, provide asset funding. Because estimates of the liquidity needs of the Bank may vary from actual needs, the Bank maintains a substantial amount of liquid assets to absorb short term increases in loans or reductions in deposits. The Company's liquid assets (cash and due from banks, federal funds sold and available-for-sale investment 17 18 securities) totaled $54,294,000, or 21.2% of total assets, at September 30, 2000 compared to $44,540,000 or 19.2% of total assets at December 31, 1999. In April 1993, the Bank entered into an agreement (the "Merchant Services Agreement") with Cardservice International, In. ("CSI"), and independent sales organization ("ISO") and nonbank merchant credit card processor, pursuant to which the Bank has agreed to provide credit and debit card processing services for merchants solicited by CSI who accept credit cards for payment of goods and services. Pursuant to the Merchant Services Agreement, Cardservice International, Inc. maintains demand deposit accounts of approximately $12,000,000 or 41.4% of the Company's capital at September 30, 2000. The Merchant Services Agreement with CSI was renewed in 1997 for a period of four years, which expires on April 1, 2001. CSI and the Company have recently reached an agreement on the renewal of the contract. Effective April 1, 2001, pricing of the contract renewal is 2 basis points of transaction processing and one-half of the earnings on the deposit relationship. The current pricing of the contract in effect is 135 basis points of transaction processing and the full earnings on the deposit relationship. The contract renewal represents a significant decline in revenues from merchant credit card processing. If the new pricing had been in effect for the nine months ended September 30, 2000, revenue would have been $960,000 less than the actual amount recorded of $1,247,000. The Company is pursuing various strategies to offset the decline in revenues, including expansion of the Roseville Banking Center, enhancing the merchant credit card sales team in the Roseville and Redding markets, and projecting aggressive growth in the loan markets. CAPITAL RESOURCES Overall capital adequacy is monitored by the Company's management and reported to the Company's Board of Directors on a monthly basis. The Bank's regulators measure capital adequacy by using a risk-based capital framework and by monitoring compliance with minimum leverage ratio guidelines. Under the risk-based capital standard, assets reported on the Company's balance sheet and certain off-balance sheet items are assigned to risk categories, each of which is assigned a risk weight. This standard characterizes an institution's capital as being "Tier 1" capital (defined as principally comprising shareholders' equity) and "Tier 2" capital (defined as principally comprising the qualifying portion of the ALLL). The minimum ratio of total risk-based capital to risk-adjusted assets, including certain off-balance sheet items, is 8%. At least one-half (4%) of the total risk-based capital (Tier 1) is to be comprised of common equity; the balance may consist of debt securities and a limited portion of the ALLL. The following table sets forth the Company's capital ratio as of the dates indicated.
September 30, 2000 December 31, 1999 ------------------ ----------------- - ----------------------------------------------------------------------------------------------- Capital Ratio's Bank Company Bank Company - ----------------------------------------------------------------------------------------------- Total Risk-Based Capital 13.84% 15.51% 14.85% 15.58% Tier 1 Capital to Risk-Based Assets 12.59% 14.26% 13.59% 14.33% Tier 1 Capital to Average Assets 10.37% 11.70% 10.44% 11.31% (Leverage ratio) - -----------------------------------------------------------------------------------------------
18 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company's primary component of market risk is interest rate volatility. Fluctuation in interest rates will ultimately impact both the level of interest income and interest expense recorded on a large portion of the Company's assets and liabilities, and the fair market value of interest earning assets and interest bearing liabilities, other than those which possess a short term to maturity. Because the Company's interest bearing liabilities and interest earning assets are with the Bank, the Company's interest rate risk exposure is in connection with the operations of the Bank. Consequently, all significant interest rate risk management procedures are performed at the Bank level. Based upon the nature of its operations, the Bank is not subject to foreign currency exchange or commodity price risk. The fundamental objective of the Bank's management of its assets and liabilities is to enhance the economic value of the Company while maintaining adequate liquidity and an exposure to interest rate risk deemed acceptable by the Company's management. The Company manages its exposure to interest rate risk through adherence to maturity, pricing and asset mix policies and procedures designed to mitigate the impact of changes in market interest rates. The Bank's profitability is dependent to a large extent upon its net interest income, which is the difference between its interest income on interest-earning assets, such as loans and securities, and its interest expense on interest-bearing liabilities, such as deposits and borrowings. The formal policies and practices adopted by the Bank to monitor and manage interest rate risk exposure measure risk in two ways: (i) repricing opportunities for earning assets and interest-bearing liabilities and (ii) changes in net interest income for declining interest rate shocks of 100 and 200 basis points. Because of the Bank's capital position and noninterest-bearing demand deposit accounts, the Bank is asset sensitive. As a result, management anticipates that, in a declining interest rate environment, the Company's net interest income and margin would be expected to decline, and, in an increasing interest rate environment, the Company's net interest income and margin would be expected to increase. However, no assurance can be given that under such circumstances the Company would experience the described relationships to declining or increasing interest rates. Because the Bank is asset sensitive, the Company is adversely affected by declining rates rather than rising rates. During a period of declining rates, short-term liabilities may be repriced to provide an advantage to the Company; however, this benefit will not be sustainable over the long-term. To estimate the effect of interest rate shocks on the Company's net interest income, management uses a model to prepare an analysis of interest rate risk. Such analysis calculates the change in net interest income given a change in the federal funds rate of 100 or 200 basis points up or down. All changes are measured in dollars and are compared to projected net interest income. At September 30, 2000, the estimated annualized reduction in net interest income attributable to a 100 and 200 basis point decline in the federal funds rate was $373,000 and $740,000, respectively. A similar and opposite result would be attributable to a 100 or 200 basis point increase in the federal funds rate. At December 31, 1999, the estimated annualized reduction in net interest income attributable to a 100 and 200 basis point decline in the federal funds rate was $359,000 and $718,000, respectively, with a similar and opposite result attributable to a 100 and 200 basis point increase in the federal funds rate. Management does not believe that the change from year-end is significant or represents a known trend toward more interest rate risk sensitivity in the Company's financial position. The model utilized by management to create the analysis described in the preceding paragraph uses balance sheet simulation to estimate the impact of changing rates on the annual net interest income of the Bank. The model considers a number of factors, including (i) change in customer and management behavior in response to the assumed rate shock, (ii) the ratio of the amount of rate change for each interest-bearing asset or liability to assumed changes in the federal funds rate based on local market conditions for loans and core deposits and national market conditions for other assets and liabilities and (iii) timing factors related to the lag between the rate shock and its effect on other interest-bearing assets and liabilities. 20 20 Actual results will differ when actual customer and management behavior and ratios differ from the assumptions utilized by management in its model. In addition, the model has limited usefulness for the measurement of the effect on annual net interest income resulting from rate changes other than 100 or 200 basis points. Management believes that the short duration of its rate-sensitive assets and liabilities contributes to its ability to reprice a significant amount of its rate-sensitive assets and liabilities and mitigates the impact of rate changes more than 200 basis points. The model's primary benefit to management is its assistance in evaluating the impact that future strategies with respect to the Bank's mix and level of rate-sensitive assets and liabilities will have on the Company's net interest income. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and its subsidiaries are involved in various legal actions arising in the ordinary course of business. The Company believes that the ultimate disposition of all currently pending matters will not have a material adverse effect on the Company's financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS N/A ITEM 3. DEFAULTS UPON SENIOR SECURITIES N/A ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS N/A ITEM 5. OTHER INFORMATION N/A ITEM 6A. EXHIBITS Ex-27.1. Financial Data table for the period ended September 30, 2000. ITEM 6B. REPORTS ON FORM 8-K Form 8-K dated October 17, 2000 Earnings Release Form 8-K dated September 25,2000 Announcing Dividend Form 8-K dated July 17, 2000 Announcing Second Quarter Earnings SIGNATURES Following the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REDDING BANCORP (Registrant) Date: October 31, 2000 /s/ Linda J. Miles ---------------------------- Linda J. Miles Executive Vice President & Chief Financial Officer 20 21 EXHIBIT INDEX Exhibit Number Description - ------- ----------- Ex-27.1. Financial Data table for the period ended September 30, 2000. EX-27.1 2 f66679ex27-1.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 3, 4 AND 5 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE OF EACH PERIOD AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 34,618 25,289 0 3,083 0 243,950 5,346 0 256,270 219,621 0 0 0 5,169 23,919 256,270 0 23,312 0 0 4,831 56 6,316 5,760 2,130 0 0 0 0 3,630 1.26 1.19
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